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Old 11-09-2010, 01:44 PM   #121
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Some good points, let me take a stab at 'em:

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Originally Posted by Independent View Post
I've read all the posts here and want to get my 2 cents in.

I don't buy any argument that sounds like "I have an absolute right to do what I want with my money." Sorry, living in a modern country means paying taxes.
Mostly agree. There is no absolute right, it must be legal and of course we need to pay taxes to support some level of govt. But hitting a pile of money with a 55% (or whatever it is) rate all in one fell swoop just doesn't sit well with me. I'll try to touch on this later.

Quote:
I don't buy the "but we have to keep family businesses together" argument. ... spread the payments over 14 years, then the business has to generate free cash flow equal to 1.8% of it's market value to pay the tax. I'd like to see the financials of a business that can't do that.
Whats the average profit margin of a business (I'll guess 8-10% range?)? I'd bet that 1.8% is a substantial chunk of it, just like we talk of an added 1% expense fee requiring us to have an added 25% in our nest egg for a 4% WR. And maybe what I'm about to say is a small number, but I'll repeat that doesn't make it right - maybe some of these businesses were on the edge. The owner just died, maybe he/she was instrumental in running the business, and this 1.8% for 14 years is the straw on the camel's back?


Quote:
I don't buy the "but the rich will always avoid it" argument. Sure, we all try to avoid taxes, but that doesn't mean we set tax rates at zero.
I don't think too many here think it always turns to zero. But whatever is avoided is avoided. It doesn't change the argument.
Quote:

I don't buy the notion that the money in large estates arises from incredibly hard work over a lifetime. I think that lots of people work very hard, much of the difference in result is luck. To a large extent, when we tax big estates were taxing extremely good luck, not hard work.
I have no idea what the break out is, obviously it some combination of all of the above. But I do find it offensive to lump them together. Clearly some of those who accumulated wealth did it through hard work, skill, education, vision, etc. And they created useful products and services and created jobs and overall were a real asset to society. Someone else won the lottery and goofed off.

There is no way for the tax code to differentiate "good" money from "bad" money. So let's not lump the good with the bad, they good might even be the majority, I don't know if numbers can capture this. And then we get into the crazy discussions of whether a sports star is "lucky" to be born with the physical attributes to play the game. To me, this lumping of the rich is no less offensive than saying that since poor people have higher rates of committing theft, we should start locking up all poor people.

If we want to make moral judgments on "good" money and "bad" money, I suggest we vote with our wallets and not broad brush tax code. I don't buy products from rappers that I find offensive, (add endless examples).

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Very wealthy people have advantages before the law because they can hire the best lawyers, they have advantages in making laws because they can make the big political contributions.
Damn right they do! And they can buy fancy cars and villas and yachts! That's why so many aspire to be rich! And let's not forget that the vast majority of posters here are "rich" relative to the average US citizen, and "filthy rich" compared to your average third world citizen.


Quote:
I think it's beneficial to society that we break up those big estates.
I'll go back to my broad-brush defense. We need proper laws and enforcement to prevent/punish wrongdoers. Someone with a lot of money can use it to do damage. A union with a lot of power can do damage. I want the damage stopped, I'm not going to pre-judge the class of people.


Quote:
I think we should respect hard work, but to me that means our financial position should be based more on what we do an less on what our ancestors did.
Money is a resource. Setting a good example, exposing your child to books, music, the arts, sciences are other resources. Good parents try to pass these onto their children. When do we go in and decide that it isn't "fair" for a child to have the advantage of good parents? If I can't give my kids money, maybe I can't give them a good education or experiences either. It isn't "fair". The "fair" police don't want my kids to have anything that everyone doesn't get, whether I worked for it or not. I know that sounds silly, but it really is an extension of what you are saying.

-ERD50
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Old 11-09-2010, 01:56 PM   #122
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I don't know about you guys, but I see the estate tax as a goal fo make sure that I keep spending/donating my assets as aggressively as possible. I don't want to be the guy who dies with the most toys, and I don't want to afflict my progeny with affluenza.

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I sure hope you guys get this all sorted out by Jan 1, 2011.
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Old 11-09-2010, 02:02 PM   #123
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Originally Posted by Nords View Post
I don't know about you guys, but I see the estate tax as a goal fo make sure that I keep spending/donating my assets as aggressively as possible. I don't want to be the guy who dies with the most toys, and I don't want to afflict my progeny with affluenza.
As good an outlook as any Nords. But being for an estate tax without talking about exemption levels and rates doesn't mean too much.

What degree of estate tax are you pulling for that would keep you aggressively spending and donating? 50% with zero ememption? 55% with $1 mil exemption. 45% with $3.5 mil exemption?

It's all in the details.........
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Old 11-09-2010, 03:13 PM   #124
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I don't buy the notion that the money in large estates arises from incredibly hard work over a lifetime. I think that lots of people work very hard, much of the difference in result is luck. To a large extent, when we tax big estates were taxing extremely good luck, not hard work.
Allow me to step out of my 'Spock Suit' a minute, and address this on an emotional level.

Maybe I'm biased, or maybe my personal experiences have exposed me to more of the 'real truth' than many - I don't know. But I've seen what some of the people of my father and father-in-law's generation have produced. Many of them accumulated an estate in the process of doing good honest work, providing valuable goods and services for others. I wonder if they consider themselves "lucky" to be born during the depression, literally scrounging garbage cans for something to eat? But this "luck" instilled a certain level of work ethic in them, and the willingness to scrimp and save for a better tomorrow - things that led to them accumulating an estate (think of the scene from "Gone with the Wind" here - 'As God is my witness, ... I'm going to live through this and when it's all over, I'll never be hungry again. No, nor any of my folk....'). Or were they "lucky" to fight in a brutal World War, an experience that I also believe instilled certain values in them that helped them to be successful later in life - they paid a very high price for that "luck", including losing some of their friends and family. Or maybe my own father was "lucky" to have a life-long physical infirmity that kept him out of the service - he was able to get his business started while his buddies were off fighting, something I think he always carried some guilt over. I've seen how hard these people worked to make their businesses successful, they worked their asses off, and they sacrificed and they took risks that many people are afraid to take. And for most of them, it paid off. Just frickin' lucky I guess.

And it isn't just their generation. I've made casual acquaintances with a few very rich people closer to my age. Is someone who went from CEO of a Fortune 100 company to CEO of a Dow 30 company rich enough for you? This guy came from a modest background, but he got an education and he had the skills and work ethic to achieve these things. He's brilliant. He has more money than he knows what to do with (he's actually rather frugal!), yet, there isn't a bone in my body that makes me think I have the right to tell him what to do with his money. He earned it, it's his to do as he pleases.

So yes, I'm offended when people want to lump all people with an estate together as "lucky" and feel that they have a right to tell these people how to dispose of the money they earned, risked, and saved and scrimped for. You go out and do what they did, survive what they did, and then we will talk. Heck, even if it was dumb luck - what gives you the right to direct what they do as a result of their luck?

Disclosure and probably TMI: These estate laws might possibly affect my family, but only in a minor way at the most. And if those people came to me and said they have decided to leave their entire estate to a charity, I'd fully support them in that decision. It is their money to do with as they see fit. No hypocrisy from me. So I'm fighting the Estate Tax on principle. I just think it is wrong on so many levels.

OK, that's off my chest. As I mentioned in another post, today is a sort of anniversary for me, so the emotion runs a bit deeper. Spock post coming up next.

-ERD50
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Old 11-09-2010, 03:41 PM   #125
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I guess we can just agree to disagree on that one. I think it would be taxing the same money twice in either case.

We're hypothesizing two cases:

The heir receives the residual of the estate after estate taxes are paid

The heir receives the residual of the estate after capital gains taxes are paid

I say if you're going to consider the residual amount as unearned income and taxable to the heir, it should apply to either. There would be no more "double taxation" to one than the other.

In any case, my only dog in this fight is that I'd like to see whatever tax system we use to dip into citizens' "leftovers" at death be straight forward and easy for the average citizen to understand and plan for without the use of expensive attorneys and CPA's.

Not the same... and I will give an extreme example.... assume $5 mill exempt and a flat rate of 50% for ease of calcs... 20% LTCG rate...

Someone dies with a $10 mill estate.. if we have an estate tax then they have a $5 mill taxable estate and pay $2.5 mill.. heirs get $7.5... It does not matter what the basis of the asssets are... but they do get a step up in basis in this example.. (which brings up another subject... there could be a big or a small amount of untaxed gains etc... see next two examples... estate taxes do not care how much has not been taxed as the tax is not based on gains etc.... just asset size)


Now, say that all $10 mill has zero basis and we tax untaxed income/gains.... we then have to pay 20% of the $10 Mill and we pay $2 mill in tax.. heirs get $8 mill...

But let's say that the person had been renting... and was a day trader and all $10 mill had a basis of $10 mill.... then there IS no gain to pay taxes on and heirs get $10 mill...
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Old 11-09-2010, 03:46 PM   #126
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Originally Posted by ERD50 View Post
There is no absolute right, it must be legal and of course we need to pay taxes to support some level of govt. But hitting a pile of money with a 55% (or whatever it is) rate all in one fell swoop just doesn't sit well with me. I'll try to touch on this later.
The rate isn't 55% on the first dollar. The marginal rate is much, much less. I gave data above.


Quote:
When do we go in and decide that it isn't "fair" for a child to have the advantage of good parents? If I can't give my kids money, maybe I can't give them a good education or experiences either. It isn't "fair". The "fair" police don't want my kids to have anything that everyone doesn't get, whether I worked for it or not. I know that sounds silly, but it really is an extension of what you are saying.

-ERD50
Oh give me a break. We make decisions based on values and balance different concerns. No theoretical purity is needed. I am not a communist and you are not an anarchist. None of us here have argued that everyone should get exactly the same thing. A straw man.

I agree with Independent that much (if not all) of how we end up is not in our control. We are a mixture of our genes, our environment, our upbringing, and generally what happens to us in life. I am a naturalist, I do not believe in free will; we are just a jumble of causes and effects. It is far easier to change people's circumstances than it is their characteristics. And it results in far less blame when none is deserved and far less credit when none is due. People really and truly do the best that they can. I have no more respect for the brilliant and hard working CEO from a modest background than I do for my brother with autism who has carved out a life for himself in his little efficiency apartment.


But I digress. Though I believe that our different world views are reflected in how we feel about estate taxes.
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Old 11-09-2010, 03:50 PM   #127
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Not the same... and I will give an extreme example.... assume $5 mill exempt and a flat rate of 50% for ease of calcs... 20% LTCG rate...

Someone dies with a $10 mill estate.. if we have an estate tax then they have a $5 mill taxable estate and pay $2.5 mill.. heirs get $7.5... It does not matter what the basis of the asssets are... but they do get a step up in basis in this example.. (which brings up another subject... there could be a big or a small amount of untaxed gains etc... see next two examples... estate taxes do not care how much has not been taxed as the tax is not based on gains etc.... just asset size)


Now, say that all $10 mill has zero basis and we tax untaxed income/gains.... we then have to pay 20% of the $10 Mill and we pay $2 mill in tax.. heirs get $8 mill...

But let's say that the person had been renting... and was a day trader and all $10 mill had a basis of $10 mill.... then there IS no gain to pay taxes on and heirs get $10 mill...
Interesting comments TP, but I don't think you were following our conversation. The question is if you apply the inheritance as unearned income to the recipients's tax return is it double taxation if an estate tax is also involved? If a capital gains tax is involved instead?

It wasn't a question of whether an estate tax and an capital gain tax are the same thing.
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Old 11-09-2010, 04:07 PM   #128
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The rate isn't 55% on the first dollar. The marginal rate is much, much less. I gave data above.

.
But it is 55% on the first dollar after the exemption amount.......no? It's zero until the exemption amount and then 55% after that, right? Any individual dollar in the estate would be taxed at either 0% (pre exemption) or 55% (after the exemption). There is no marginal rate lower than the 55% other than the 0% rate on the exemption amount.

Or am I misunderstanding the way that works?
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Old 11-09-2010, 04:18 PM   #129
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Rate schedule attached. Don't forget your state level taxes as well - most states still have them or reinstated them.
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Old 11-09-2010, 04:26 PM   #130
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Disclosure and probably TMI: These estate laws might possibly affect my family,
I think everyone's personal circumstances have an impact on how they view taxes, especially estate taxes.

Frankly, I'm hoping our butthole Congress Critters put an exemption level in place that frees me from the expenses and aggravation of extensive estate planning in regard to taxes. It seems like such a waste. Congress passes laws. Citizens pay lawyers/CPA's to try to work around them. Real value added stuff, huh? What a waste!

My libertarian streak prompts me to want estate laws to be straight forward and simple enough that an average citizen has a clue. There is a concurrent thread going on right now where a poster asked for advise on how his friend should handle reducing estate taxes on a ten million bux estate. Immediately many folks recommended getting a good estate planning attorney and CPA. Most seemed to feel that the level of tax you'd pay depended on the skill of your attoney/CPA. So sad....... But it's the way our country works these days.

So, ERD50, don't feel alone in having your personal circumstances and life views impacting how you feel on this subject. We all do. I suspect everyone who has posted in this thread is either espousing a view that benefits them personally or that is congruent with their philosophical view of life in the midst of history...... or both.
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Old 11-09-2010, 04:26 PM   #131
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Originally Posted by Nords View Post
I don't know about you guys, but I see the estate tax as a goal fo make sure that I keep spending/donating my assets as aggressively as possible. I don't want to be the guy who dies with the most toys, and I don't want to afflict my progeny with affluenza.


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Old 11-09-2010, 04:28 PM   #132
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Some good points, let me take a stab at 'em:
Mostly agree. There is no absolute right, it must be legal and of course we need to pay taxes to support some level of govt. But hitting a pile of money with a 55% (or whatever it is) rate all in one fell swoop just doesn't sit well with me. I'll try to touch on this later.
Okay. I guess my only question is what tax rate would seem acceptable?

Quote:
Whats the average profit margin of a business (I'll guess 8-10% range?)? I'd bet that 1.8% is a substantial chunk of it, just like we talk of an added 1% expense fee requiring us to have an added 25% in our nest egg for a 4% WR. And maybe what I'm about to say is a small number, but I'll repeat that doesn't make it right - maybe some of these businesses were on the edge. The owner just died, maybe he/she was instrumental in running the business, and this 1.8% for 14 years is the straw on the camel's back?
We probably need Martha here. I guessed that the value of a business was the discounted sum of future profits. If the business is “on the edge” the discounted profits would be below the exempt amount. Same is true if the deceased is the source of the profits (e.g. a dental practice).
But, would you apply the same rule to other taxes? My daughter is a sole proprietor. Her FICA tax is 15.3%. Maybe that’s the difference between the business making financial sense or being just a hobby. Even if it is in her case, I wouldn’t eliminate FICA because some businesses are on the edge.

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I don't think too many here think it always turns to zero. But whatever is avoided is avoided. It doesn't change the argument.
I’m not sure what argument doesn’t change. Any tax generates avoidance and evasive actions, that’s not an adequate argument to say we shouldn’t have the tax.


Quote:
I have no idea what the break out is, obviously it some combination of all of the above. But I do find it offensive to lump them together. Clearly some of those who accumulated wealth did it through hard work, skill, education, vision, etc. And they created useful products and services and created jobs and overall were a real asset to society. Someone else won the lottery and goofed off.

There is no way for the tax code to differentiate "good" money from "bad" money. So let's not lump the good with the bad, they good might even be the majority, I don't know if numbers can capture this. And then we get into the crazy discussions of whether a sports star is "lucky" to be born with the physical attributes to play the game. To me, this lumping of the rich is no less offensive than saying that since poor people have higher rates of committing theft, we should start locking up all poor people.

If we want to make moral judgments on "good" money and "bad" money, I suggest we vote with our wallets and not broad brush tax code. I don't buy products from rappers that I find offensive, (add endless examples).
I didn’t say “good” and “bad”, I said “resulting from work” and “resulting from luck”. I don’t find good luck immoral, I’ve enjoyed some of it myself. Nobody is suggesting that we lock up all rich people.

I don’t care what words you want to put on it. I use “work” and “luck”, if you find them offensive I’ll be happy to change the words. The concept is that (1) some of your financial success results from your decision to work harder than somebody else with the same opportunities, and (2) some comes from having better opportunities. Yes, I’d put genes in 2.

IMO, it’s physically impossible to work much more than twice as hard as the average American over a lifetime. If the average is 42 hours, I think 84 hours is something that’s not sustainable. I expect some people work 65 hours but are unusually intense, and get to “twice” that way. If the average American earns $40k for 40 years that’s $1.6 gross earnings in a lifetime. Maybe $3.2 gross is the upper limit of (1). Deduct for spending and add for typical investment returns and an estate of $3.5 million seems like the top. Anything over that must have come from (2). So the suggested exemption of $3.5 million or $7.0 million seems like the top end of what extra hard work can produce.

But that’s “luck” from the perspective of the deceased. I think it’s clear that from the perspective of the heir, any inheritance is “luck”. That seems more relevant to me.

Quote:
Damn right they do! And they can buy fancy cars and villas and yachts! That's why so many aspire to be rich! And let's not forget that the vast majority of posters here are "rich" relative to the average US citizen, and "filthy rich" compared to your average third world citizen. I'll go back to my broad-brush defense. We need proper laws and enforcement to prevent/punish wrongdoers. Someone with a lot of money can use it to do damage. A union with a lot of power can do damage. I want the damage stopped, I'm not going to pre-judge the class of people.
I see a fundamental difference between “so much money you can buy a yacht” and “so much money you can buy a congressman”. It may be the same money, but one use is ho-hum while the other seems anti-democracy. I could agree with your “pre-judge” if the issue were putting people in jail. I’m talking about least-destructive taxes.

Quote:
Money is a resource. Setting a good example, exposing your child to books, music, the arts, sciences are other resources. Good parents try to pass these onto their children. When do we go in and decide that it isn't "fair" for a child to have the advantage of good parents? If I can't give my kids money, maybe I can't give them a good education or experiences either. It isn't "fair". The "fair" police don't want my kids to have anything that everyone doesn't get, whether I worked for it or not. I know that sounds silly, but it really is an extension of what you are saying.
This is a slippery slope argument. I could say we shouldn’t have any taxes on wages because that would lead to 100% taxes on wages, and I'd be wrong. In this case, I see a fundamental difference between trying to give your kids the chance to be productive citizens and giving your kids so much that they can consume without producing.
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Old 11-09-2010, 04:35 PM   #133
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Thanks SunsetSail!

I wasn't aware of those intermediate steps. So zero until a million bux. Then 41% at 1 million bux ratcheting up to 55% at 3 million bux. Then an additional 5% surcharge (with a limit) after that.

The media (yeah, I know, should NEVER listen to those buttheads) generally express it as though it jumps from zero to 55% at one million bux.
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Old 11-09-2010, 04:56 PM   #134
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Hmmmm, we seem to have these discussions about "luck," "fairness" and "wealth re-distribution" every year or so. I don't intend to hi-jack this thread into a philosophical discourse about those notions, but I think we'd all benefit from this informative lecture by Professor Sandel: Justice with Michael Sandel - Episode Eight.

By the way, I read his recent book on Justice and it's fast reading and a very good primer on some of the essential readings on moral philosophy.
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Old 11-09-2010, 04:56 PM   #135
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Interesting comments TP, but I don't think you were following our conversation. The question is if you apply the inheritance as unearned income to the recipients's tax return is it double taxation if an estate tax is also involved? If a capital gains tax is involved instead?

It wasn't a question of whether an estate tax and an capital gain tax are the same thing.

Maybe you were in a conversation and meant to say something different.... but you were saying that if there is an estate tax or they pay a cap gain tax it is still less to the heir.... I just pointed out that might not be the case...

Right now we do not have both... nobody I know is proposing both... what some are saying is there should be a tax on untaxed income or gain... so I provided an example of what it might look like...
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Old 11-09-2010, 04:59 PM   #136
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[QUOTE=Martha;998408]
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Let me chew on that a while. I'm probably more aligned with that thinking then you'd imagine, but on first reading, I think it downplays the effort that people put into life, but let me work on it.
It does, because what I am saying is that your degree of effort is a product of all those causes and effects. So the person who appears to put in very little effort and screws up his life may not have had much choice in the matter. He also did the best he could. I know that is somewhat heretical, but I see no reason to believe otherwise.
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Old 11-09-2010, 05:07 PM   #137
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Maybe you were in a conversation and meant to say something different.... but you were saying that if there is an estate tax or they pay a cap gain tax it is still less to the heir.... I just pointed out that might not be the case...

Right now we do not have both... nobody I know is proposing both... what some are saying is there should be a tax on untaxed income or gain... so I provided an example of what it might look like...
No problem TP. You would have had to read my comments in light of the quote which was included in my post. Taken out of context, as you did, naturally you misunderstood my point.
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Old 11-09-2010, 05:22 PM   #138
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Originally Posted by Independent View Post
Okay. I guess my only question is what tax rate would seem acceptable?
For Estate Tax, I lean towards zero. I just don't like the idea of taxing accumulations that were taxed as they earned them. If we have cap gains tax, step up is OK. But from the practical point of trying to de-motivate work-arounds, the tax should be no more onerous than any other form of taxing that money. Heh, might as well get rid of it then!


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I didn’t say “good” and “bad”, I said “resulting from work” and “resulting from luck”. I don’t find good luck immoral, I’ve enjoyed some of it myself.
OK, that was just my shorthand to differentite them. Probably not the best choice of terms.

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Nobody is suggesting that we lock up all rich people.
Just an analogy - we should not assume all members of a group are criminals if that group has a higher proportion of criminals, and we shouldn't assume all rich people got there by luck just because some did.



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IMO, it’s physically impossible to work much more than twice as hard as the average American over a lifetime. If the average is 42 hours, I think 84 hours
I think ChrisC is right - this is sounding very DejaVu' - I'll follow his link below later. But very quickly, and I think we said this last tie, earning potential is not directly related to hours worked. You've never seen someone accomplish almost nothing in 40 hours (or actually go backwards!), while another makes all sorts of progress? And on and on, should be a separate thread, maybe along with Martha's 'naturlist' view on things.


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This is a slippery slope argument.
Yes, but we seem to be sliding down it. See my comments about the Chicago Public Schools earlier.

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Originally Posted by ChrisC View Post
Hmmmm, we seem to have these discussions about "luck," "fairness" and "wealth re-distribution" every year or so. I don't intend to hi-jack this thread into a philosophical discourse about those notions, but I think we'd all benefit from this informative lecture by Professor Sandel: Justice with Michael Sandel - Episode Eight.

By the way, I read his recent book on Justice and it's fast reading and a very good primer on some of the essential readings on moral philosophy.
Thanks, will check it later.

-ERD50
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Old 11-09-2010, 05:27 PM   #139
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Originally Posted by ERD50 View Post
For Estate Tax, I lean towards zero. I just don't like the idea of taxing accumulations that were taxed as they earned them. If we have cap gains tax, step up is OK. But from the practical point of trying to de-motivate work-arounds, the tax should be no more onerous than any other form of taxing that money. Heh, might as well get rid of it then!

-ERD50
How do you propose taxing the unearned income to the recipients?
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Old 11-09-2010, 05:32 PM   #140
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In IL, a high % of school funding comes from the local community. There is an affluent north shore suburb where the property taxes are very high, and they pour tons of money into their local school system. It is something they choose to do by referendum. Some activists bussed kids in from the Chicago Public Schools and demanded they be enrolled in this school that they paid no taxes to support. There were definitely comments made that if we can't have it they can't have it. Geez, what's the point of working and saving if you're not allowed to benefit from it?

-ERD50
I do not understand what this has to do with the estate tax discussion.
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